How to Establish Credit for Companies
Establishing business credit for your company is an important step to growing a business. Suppliers may want to check for a business credit profile before establishing a relationship with your company and a good credit profile helps you forge a relationship with them. Business credit is different from consumer credit. Different companies keep track of business credit profiles compared to personal profiles. Some information is looked at differently with business credit than with personal credit such as the number of inquiries into a credit report. Over time, with on-time payment history, you can establish a strong business credit profile for your company.
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Instructions
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Establish a corporation or limited liability company (LLC) for your business. This creates a separate ownership entity for your business. With these forms of ownership, your business operates as its own person with its own identity. This also makes your business completely responsible by itself for its own debts and liabilities. Whichever type of entity you form affects your income tax situation. Consult with an accountant or lawyer to determine which type of ownership is best for you.
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Apply for a federal employer tax ID number (see Resources). U.S. tax law states that you have to apply for and receive a new number when you change the ownership type of your business, such as from a sole proprietorship to a corporation. This is also the number that you use to apply for business credit, rather than your own social security number. Having a separate tax number also helps to keep business credit entries separate from your personal credit report.
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Open a business checking account in your business name. This establishes a businesses relationship with a bank. The bank may be more willing to extend credit to your business because it will be easier for them to verify cash flow from your company. Establish a dedicated business telephone line as well. It helps to prove that your company is a professional organization.
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Register your company with business credit bureaus. Dun and Bradstreet is the most well known of all of the business credit bureaus. The DUNS number that many businesses ask for before establishing trade credit is issued by Dun and Bradstreet. Experian Business and Equifax business are two other business credit bureaus that maintain information on business credit.
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Find companies that will extend your company credit without a personal guarantee or credit check. Suppliers are the first place to look. Often suppliers will not report to any of the credit bureaus if you have positive payment history, so be sure to ask. Apply with credit cards that specialize in business lending. They may be willing to give you a small account in the company's name only.
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Pay your business bills on time every time. As you pay your suppliers, you build payment history with them and increase the chances that you will be able to use them as a positive credit reference. Installment loans and credit cards will usually report good payment history to the business credit bureaus.
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Practice responsible use of credit. Keep your obligations manageable and do not over-extend yourself. Be certain that you carry no more than 30 percent of your available credit in credit card balances per month.
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Tips & Warnings
Most lenders will still want a personal guarantee from the company owner or president particularly in the beginning stages of establishing business credit. You will need this less as you establish company credit. Ask lenders if they would be willing to release your personal liability after a certain amount of time with a good payment history.
As with personal credit, use business credit carefully and responsibly. Do not take excessive risks with your company and its assets.
References
Resources
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